NBFC Process & Risk

Management


Introduction - Margin Funding

RBI is the regulator for a Non Banking Finance Corporation

Margin Funding is a lending facility where client can avail loan to trade in shares
(Cash Segment of BSE & NSE ) against margin amount

The investor pays only an agreed percentage (margins) of the total value of
shares bought and the remaining is funded by Angel Fincap Pvt Ltd (AFPL)

AFPL then charges 18% interest on this loan to the investor on the actual ledger
from T+2 day ( it is computed on daily basis but levied Monthly )

Loan facility will be provided only to those clients who would be providing an
initial margin in cheque, DD, PO or equivalent value of securities after
appropriate haircut as specified

Margin Funding facility is beneficial to the investors who trades on delivery basis
and holds investment

As per the Exchange guideline Debit is not allowed in Broking beyond T+7

To take high exposure



Why NBFC?
Process Margin Funding
Process Margin Funding
Credit Process
The loan application form is sent to KYC team for verification.
Post verification, the loan documents i.e. DP statement, Income source
documents and Bank statements are sent for credit appraisal (if there are no
objections raised) for determining the credit worthiness of the borrower
The Credit appraisal process involves assigning credit score considering the
clients background, name clearance (RBI & SEBI defaulter list), trading history,
occupation, source of income, scrutiny of bank statement(last 6 months), risk
profiling by RM and CIBIL score (should be above 600)
Based on income parameters and the credit score, the risk appetite is
ascertained and loan amount is sanctioned
If any of the parameters are not satisfied then the loan application is rejected
and in exception cases it is send to the Credit Committee for approval



Formulae



Particulars Definition/Formula
Projected Risk (Ledger + holding) ( VaR + ELM (Extreme Loss Margin) considered
for calculating projected risk on open positions ) - Pure risk
Logical Ledger Balance Loan ledger balance in books of AFPL (including unsettled
trades plus outstanding interest)
Actual ledger +/- unsettled + Accrued Interest
Stock before haircut Value of holdings before haircut ( Total holding )
Value after hair cut Net value of securities (after application of scrip-wise
differential margins) purchased and/ or accepted as margin.
Total holding Margin ( Haircut )
Pure Risk Logical ledger (Dr) > Stock before haircut
Margin Excess / Shortage Value after hair-cut Logical Ledger Balance
If positive, client is in margin excess.
If negative, client is in margin shortage.
Scrip
Name
Case Scrip Category Exchange
VaR
Angel VaR Final VaR Justification I Projected VaR
margin
Justification II
ABC I
Blue chip or
Good 20% - 20%
Exchange VaR
or Angel VaR
whichever is
higher 10%
Projected VaR
would be 50%
of Final VaR
II Average 20% 40% 40%
Flat 40% or
Exchange VaR
whichever is
higher 20%
Projected VaR
would be 50%
of Final VaR
III Poor 50% 100% 100%
Exchange VaR
or Angel VaR
whichever is
higher
Flat 100% of
holding value
Projected VaR
would be flat
100% of the
holding value
Final VaR & Projected risk haircut
Example of Projected Risk Calculation


= (Ledger + holding) (VaR + ELM considered for calculating projected risk
on open positions as shown in above table) Pure risk.

Given below is an example for Code AAB123 :-








Logical Ledger: (50,79,689.51) Dr
Projected Risk would be as follows:
Ledger + holding 50 % of exchange VaR margin for blue chip, good and
average scrip and flat 100% of holding value for poor scrip - Pure risk.

= (50,79,689.51) + 4565359.04(holding with HC applying scrip wise haircuts
for projected risk)
= (5,14,330.47)


Contd
Contd
Total
Holding
Logical
Ledger
Ex. VAR %
(Margin)
Holdings
after HC
considering
exchange
VaR
30% of Ex. VAR
for auto square
off projected risk
Min margin to
be maintained
to avoid auto
square off
Margin
shortage

25,000

24,000

15%

21,250

4.5%

1,125

(2,750)
Square off process
The client needs to maintain minimum 30% of the Ex. VAR in order to avoid auto
square off EXAMPLE - Consider Client X, Initial Margin - 1,000 and Margin Funding -
24,000

As we square off to the tune of margin shortage, in the above example, only 2,750
(21,250-24,000) will be squared off and not entire debit of 24,000.
A Square off SMS is sent to the client


Type of Margin Call Criteria Course of Action
Collection Call All margin shortage clients Daily intimation via SMS to
clients
Final Margin Call (Ledger + holding) (VAR +
ELM considered for calculating
Projected risk on open
position) - Pure risk
(Considering 50%)
Collection to be updated
within 3 days
Liquidation Call (Ledger + holding) (VAR +
ELM considered for calculating
auto square off on open
position) - Pure risk
(Considering 30%)
Compulsory square Off will be
done
Margin Call
Concentration in single scrip would be restricted up to the limits given
below:

Concentration in Blue Chip Category - Up to 3 crores
Concentration in Good Category Up to 50 lacs
Concentration in Average Category Up to 15 lacs
Poor Category would be allowed purely on Cash & Carry basis

Single Scrip Concentration
SMS alerts for margin shortage are sent to all AFPL clients on a daily basis.
Client can view ledger report, margin report, holding report, transaction
statement, etc. any-time through online access to account information.
Can view the Margin available at beginning of the day
Day to day tracking of Margin Shortfall
Reports for viewing the holding statement of shares under MF facility
Consolidated view for client Ledger
Reports for details of Interest accrued till date
List of Approved Scrip list


Facilities to clients
Selling/square off in AFPL only to cover shortfall whereas in Angel broking
to cover the entire debit.
Client has no obligation to square off in a specific tenure if adequate
margins are maintained, unlike broking.
Cannot keep position in broking while it can be done in AFPL.
Any appreciation in the value of the Securities given as margin would
automatically allow enhancement in drawing power.
As compared to derivatives market, where clients can leverage for only
large cap companies, margin funding facility provides lending for selected
Mid Cap as well as Small cap companies.

Comparison of NBFC with broking
Email ID - [email protected]
Contact Number - 022-29211530/537
Margin Funding Helpdesk